New Silver Miller law - IN ARBITRATION BEFORE JUDICIAL … · 2017. 12. 11. · SILVER MILLER 11780...

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IN ARBITRATION BEFORE JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (JAMS)

Case No.: 1100088894 Arbitrator: Hon. William F. Downes (Ret.)

ELIAS an individual; PETER an individual; CHRISTOPHER an individual; JAMES an individual; JESSE an individual; NATHAN an individual; KHURRAM an individual; JOHANNES an individual; MAAYAN an individual; STANISLAV an individual; PHILIP an individual; CALIN an individual; IGOR an individual; an individual; TRAVIS an individual; NICK an individual; CHRIS an individual; ARISTEIDIS an individual; ANDREW an individual; MARCO an individual; NICHOLAS an individual; BRIAN an individual; ANTONIO an individual; CHARLES an individual; BADRUZ an individual; RUDOLF an individual; FRANK an individual; and MICHAEL an individual;

Claimants,

v.

PAYWARD, INC. d/b/a KRAKEN, a Delaware corporation;

Respondent. __________________________________________________/

AMENDED STATEMENT OF CLAIM

Claimants ELIAS an individual; PETER an individual;

CHRISTOPHER an individual; JAMES an individual; JESSE

an individual; NATHAN an individual; KHURRAM an individual; JOHANNES

an individual; MAAYAN an individual; STANISLAV an

individual; PHILIP an individual; CALIN an individual; IGOR

an individual; an individual; TRAVIS an

individual; NICK an individual; CHRIS an individual; ARISTEIDIS

an individual; ANDREW an individual; MARCO an

individual; NICHOLAS an individual; BRIAN an individual; ANTONIO

an individual; CHARLES an individual (collectively “The Margin Claimants”);

http://www.silvermillerlaw.com/

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BADRUZ an individual (“ RUDOLF an individual (“ FRANK

an individual (“ and MICHAEL an individual (“ (The Margin

Claimants, and collectively referred to as “Claimants”) bring this

action against PAYWARD, INC. d/b/a KRAKEN, a Delaware corporation (“Respondent” or

“KRAKEN”). As grounds therefor, Claimants allege the following:

PRELIMINARY STATEMENT

1. KRAKEN is the self-touted “largest Bitcoin exchange in euro volume and liquidity and also

trading Canadian dollars, U.S. dollars, British pounds, and Japanese yen.” 1 KRAKEN further promotes itself

as “consistently [being] rated the best and most secure Bitcoin exchange by independent news media.”2

2. Despite all of its self-promotion about how secure, reliable, flexible, and varied its

services are, even KRAKEN’s own Chief Executive Officer (Jesse Powell) has publicly conceded to

users that KRAKEN’s promises of security and reliability are false and that KRAKEN’s business

operations have long-been broken beyond repair:

1 https://www.kraken.com/en-us/about.

2 Id.


https://www.kraken.com/en-us/about

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* * *

* * *

3. While knowing that the recent state of its platform was that it simply did not work,

would require a complete overhaul -- in part because KRAKEN’s feverish solicitation of new

customers outstripped its ability to provide the services promised to those customers -- and that

KRAKEN and its users faced “only bad and worse choices” if forced to continue struggling with

KRAKEN’s ill-functioning software; KRAKEN never stopped proudly proclaiming on its website

(through and including today) that it is “the best Bitcoin exchange,” never warned its users of the

irreparable state of the platform, and has refused to provide a remedy to Claimants, who are among

the very accountholders subject to the substandard system on which KRAKEN itself has deliberately

chosen to give up.


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4. Contrary to the promotional materials it uses to lure in the accountholders that have

made it “the largest Bitcoin exchange,” the truth about KRAKEN was revealed by Mr. Powell and is more

quietly and surreptitiously revealed in the unconscionable Terms of Service posted on its site, where

KRAKEN states the following:

• “Payward shall not be responsible for any communication failures, disruptions, errors, distortions or delays you may experience when trading via the Services, howsoever caused.”

• “We may, at any time and in our sole discretion, refuse any trade submitted via the Services, impose limits on the trade amount permitted via the Services[,] or impose any other conditions or restrictions upon your use of the Services without prior notice.”

• “We may, in our sole discretion and without liability to you, with or without prior notice and at any time, modify or discontinue, temporarily or permanently, any portion of our Services.”

• “We can sell your assets without contacting you.”

• “Customers may mistakenly believe that we must contact them for a margin call to be valid, and that we cannot liquidate assets in their accounts to meet the call unless we have contacted them first. This is not the case. * * * [E]ven if we have contacted you and provided a specific date by which you can meet a margin call, we can still take necessary steps to protect our financial interests, including immediately selling assets without notice to you.”

• “We can increase maintenance margin requirements at any time and are not required to provide you with advance written notice.”

(emphasis added).

5. KRAKEN’s relationship with its customers are not “sound and reliable”; they are actually

unreliable, fleeting, unpredictable, and can change in a moment at KRAKEN’s sole discretion without

any notice to customers.

6. Moreover, KRAKEN quickly disavows any responsibility for anything that goes

wrong on its site -- and puts that responsibility on customers -- “howsoever caused.” “Howsoever

caused” is a stupefying phrase that boldly purports to negate, and ignores, KRAKEN’s own negligent


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or even criminal acts, putting responsibility for such acts and omissions on a customer base that has

no ability whatsoever to affect or prevent that behavior by KRAKEN.

7. Indeed, KRAKEN’s acts, omissions, intentional and negligent deeds have caused

substantial harm to many of its accountholders (including Claimants); and KRAKEN cannot be

permitted to simply turn its back on those accountholders under the guise of self-serving Terms of

Service that bear no connection to the representations made to induce those accountholders to trust

KRAKEN with their valuable assets.

8. When KRAKEN failed to properly ward off a “flash crash” and simultaneous DDoS

attack that robotically forced the liquidation of The Margin Claimants’ margin trading accounts and

Claimant non-margin account, KRAKEN essentially told Claimants that it was Claimants’

fault for having used KRAKEN’s Services, not KRAKEN’s fault for not properly upholding its

promise of “impeccable security.”

9. When KRAKEN failed to timely execute numerous transactions for Claimants

and and thereby caused Claimants and significant loss through no actions of

their own, KRAKEN told Claimants and that KRAKEN would not compensate them

for their losses “howsoever caused,” though the cause (KRAKEN’s malfeasance) was clear.

10. When Claimant alerted KRAKEN of a hack into his account, KRAKEN

assured him that it had secured his assets, and Claimant watched in horror as his account

was soon thereafter emptied by the interloper with no interference or protection from KRAKEN,

KRAKEN likewise turned its back on him as well.

11. If KRAKEN’s advertising paralleled the manner in which KRAKEN actually treats

its accountholders, KRAKEN would concede the following: “Our services are unreliable. We can

alter or entirely stop providing services to you, and we don’t have to tell you that the services on which

you rely are unavailable or terminated. We are prone to slowdowns, shutdowns, and outside attacks.


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Orders are not always processed quickly enough to prevent significant market slippage. And if

anything goes wrong, we will blame you for trusting us in the first place. After all, you know that’s

how we operate in the self-regulated world of cryptocurrency, right?”

12. Put another way, KRAKEN’s top priority is not its customers’ safety, the quality and

reliability of the services its customers demand, or even whether those customers care to stay with

KRAKEN. Rather, as Mr. Powell himself has conceded, KRAKEN’s top priorities are how much

money it makes and its own brand:

* * *

13. Essentially, KRAKEN -- during the relevant time period -- knew its services were

fatally flawed and irretrievably broken and knew its accountholders were being harmed and were in

danger of additional harm, yet KRAKEN withheld those highly material facts from its accountholders


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while instead continuing to reap from them fees for the broken service KRAKEN was mispromoting.

And when KRAKEN was confronted on the issue, it told users: “If that’s not working well for you,

then we encourage you to take your business somewhere else.”

14. An old Chinese proverb holds that “Character is revealed when pressure is applied.”

As demonstrated herein, it is apparent that KRAKEN’s true character is not nearly that of the

honorable, praiseworthy, and esteemed cryptocurrency exchange KRAKEN wishes for the

cryptocurrency community to believe it is. Rather, KRAKEN gleefully takes all of its client-generated

profits while simultaneously refusing to take responsibility for anything that goes wrong in its business

operations.

PARTIES

THE MARGIN CLAIMANTS

15. Claimant ELIAS is a natural person and is a resident of Canada. At all

times material hereto, Claimant maintained one or more margin trading accounts at

KRAKEN in which he held cryptocurrency, including Ether

16. Claimant PETER is a natural person and is a resident of the United

Kingdom. At all times material hereto, Claimant maintained one or more margin

trading accounts at KRAKEN in which he held cryptocurrency, including Ether.

17. Claimant CHRISTOPHER is a natural person and is a resident of Bradenton,

Florida. At all times material hereto, Claimant maintained one or more margin trading

accounts at KRAKEN in which he held cryptocurrency, including Ether.

18. Claimant JAMES is a natural person and is a resident of the United Kingdom.

At all times material hereto, Claimant maintained one or more margin trading accounts at

KRAKEN in which he held cryptocurrency, including Ether.


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19. Claimant JESSE is a natural person and is a resident of Canada. At

all times material hereto, Claimant maintained one or more margin trading accounts

at KRAKEN in which he held cryptocurrency, including Ether.

20. Claimant NATHAN is a natural person and is a resident of Atlanta,

Georgia. At all times material hereto, Claimant maintained one or more margin trading


21. Claimant KHURRAM is a natural person and is a resident of Miami Beach,

Florida. At all times material hereto, Claimant maintained one or more margin trading


22. Claimant JOHANNES is a natural person and is a resident of

Switzerland. At all times material hereto, Claimant maintained one or more margin

trading accounts at KRAKEN in which he held cryptocurrency, including Ether and bitcoin.

23. Claimant MAAYAN is a natural person and is a resident of Israel. At all



24. Claimant STANISLAV is a natural person and is a resident of Canada.

At all times material hereto, Claimant maintained one or more margin trading accounts


25. Claimant PHILIP is a natural person and is a resident of Canada. At

all times material hereto, Claimant maintained one or more margin trading accounts


26. Claimant CALIN is a natural person and is a resident of Oceanside,

California. At all times material hereto, Claimant maintained one or more margin trading



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27. Claimant IGOR is a natural person and is a resident of Canada.

At all times material hereto, Claimant maintained one or more margin trading


28. Claimant is a natural person and is a resident of

Switzerland. At all times material hereto, Claimant maintained one or more margin


29. Claimant TRAVIS is a natural person and is a resident of Chicago, Illinois. At

all times material hereto, Claimant maintained one or more margin trading accounts at


30. Claimant NICK is a natural person and is a resident of the

Netherlands. At all times material hereto, Claimant maintained one or more margin


31. Claimant CHRIS is a natural person and is a resident of Foster City,

California. At all times material hereto, Claimant maintained one or more margin trading


32. Claimant ARISTEIDIS is a natural person and is a resident of Greece.

At all times material hereto, Claimant maintained one or more margin trading


33. Claimant ANDREW is a natural person and is a resident of Australia.



34. Claimant MARCO is a natural person and is a resident of Italy. At all




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35. Claimant NICHOLAS is a natural person and is a resident of Houston,

Texas. At all times material hereto, Claimant maintained one or more margin trading


36. Claimant BRIAN is a natural person and is a resident of Austin, Texas. At all

times material hereto, Claimant maintained one or more margin trading accounts at KRAKEN

in which he held cryptocurrency, including Ether.

37. Claimant ANTONIO is a natural person and is a resident of Puerto Rico. At

all times material hereto, Claimant maintained one or more margin trading accounts at


38. Claimant CHARLES is a natural person and is a resident of Canada.



CLAIMANT

39. Claimant BADRUZ is a natural person and is a resident of the United

Kingdom. At all times material hereto, Claimant maintained one or more trading accounts


CLAIMANT

40. Claimant RUDOLF is a natural person and is a resident of the Netherlands.

At all times material hereto, Claimant maintained one or more trading accounts at KRAKEN

in which he held cryptocurrency, including Ether.

CLAIMANT

41. Claimant FRANK is a natural person and is a resident of Orchard Beach,

Maryland. At all times material hereto, Claimant maintained one or more trading accounts at

KRAKEN in which he held cryptocurrency, including bitcoin and Ether.


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CLAIMANT

42. Claimant MICHAEL is a natural person and is a resident of Las Vegas,

Nevada. At all times material hereto, Claimant maintained one or more trading accounts at

KRAKEN in which he held cryptocurrency, including bitcoin and Ripple.

RESPONDENT

43. Defendant KRAKEN is a Delaware corporation with its principal place of business in

San Francisco, California.

JURISDICTION AND VENUE

44. Judicial Arbitration and Mediation Services, Inc. (JAMS) has jurisdiction over this

matter and over Respondent pursuant to the Terms of Service to which Claimants were each required

to agree in connection with opening and maintaining their accounts at KRAKEN. Specifically, one

section of the Terms of Service (“Applicable Law; Arbitration”) provides, in pertinent part:

PLEASE READ THE FOLLOWING PARAGRAPH CAREFULLY BECAUSE IT REQUIRES YOU TO ARBITRATE DISPUTES WITH US AND IT LIMITS THE MANNER IN WHICH YOU CAN SEEK RELIEF.

You and Payward agree to arbitrate any dispute arising from these Terms or your use of the Services . . . . * * * You and Payward further agree: (a) to attempt informal resolution prior to any demand for arbitration; (b) that any arbitration will occur in San Francisco, California; (c) that arbitration will be conducted confidentially by a single arbitrator in accordance with the rules of JAMS; and (d) that the state or federal courts in San Francisco, California have exclusive jurisdiction over any appeals or an arbitration award and over any suit between the parties not subject to arbitration.

(the “Arbitration Clause”).

45. The parties agree that prior to commencing this action, they have attempted to

informally resolve this dispute; but those efforts were unsuccessful.


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GENERAL ALLEGATIONS

46. Ether (“ETH”) is a virtual currency that may be traded on online exchanges for

conventional currencies, including the U.S. Dollar, Euros, and the Japanese Yen, or used to purchase

goods and services online. Ether has no single administrator or central authority or repository.

47. Ether is one of the cryptocurrencies that KRAKEN encourages users to trade on its

platform -- both in spot transactions and in leveraged margin trading.

48. At all times relevant hereto, Claimants maintained trading accounts at KRAKEN that

held, among other digital currencies, Ether.

THE EVENTS OF MAY 7, 2017 EXPOSE KRAKEN’S “IT’S NOT ME, IT’S YOU” BLAMESTORMING TREATMENT OF ITS CUSTOMERS

49. On May 7, 2017, there was, upon information and belief, an attack and/or market

manipulation which effectively caused a momentary perceived yet precipitous drop in the price of

Ether on the KRAKEN exchange.

50. Upon further information and belief, KRAKEN’s actions and omissions compounded

either an external attempt to disturb KRAKEN’s databases or an internal software malfunction (or

both), which precipitated a heavy DDoS, slowing and effectively stopping KRAKEN’s systems from

working as they should.

51. Regardless of the actual cause, KRAKEN’s actions and omissions in response to the

events of that afternoon left most individual KRAKEN users unable to log into the website to manage

their accounts.

52. Not all KRAKEN users were walled-off from trading, though. Some back-end users

and bots took advantage of the precipitous Ether price drop by filling their accounts with low-priced

Ether -- something Claimants and their fellow on-the-street traders were prevented from doing.


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53. Additionally, while KRAKEN’s DDoS was in effect and most users could not log in,

KRAKEN users who held Ether in their accounts on margin had their positions forcibly liquidated at

KRAKEN’s discretion.

54. On the early-afternoon of May 7, 2017 -- at the moment before the Ether crash and

DDoS went into effect -- The Margin Claimants held thousands of Ether in their KRAKEN margin

accounts.

55. While the customer lockout was in effect, KRAKEN liquidated The Margin Claimants’

margin accounts in the following amounts, and at the following valuations:

Name

Amount of Ether Forcibly Liquidated by

Kraken on May 7, 2017

Estimated Damages3 as of:

May 7, 2017 [Price of ETH: $96.32]

December 11, 2017 [Price of ETH: $470.00]

Elias 100 $9,632.00 $47,000.00

Peter 3,207.319 $308,928.97 $1,507,439.93

Christopher 18 $1,733.76 $8,460.00

James 436 $41,995.52 $204,920.00

Jesse 28.12 $2,708.52 $13,216.40

Nathan 125.28 $12,066.97 $58,881.60

Khurram 500 $48,160.00 $235,000.00

Johannes 357.13385 $34,399.13 $167,852.91

Maayan 970 $93,430.40 $455,900.00

Stanisiav 801.52 $77,202.41 $376,714.40

Philip 421.61541 $40,610.00 $198,159.24

Calin 60 $5,779.20 $28,200.00

Igor 300 $28,896.00 $141,000.00

1,420 $136,774.40 $667,400.00

3 These damages do not include the liquidation of other cryptocurrencies, cash holdings, margin liabilities, and is exclusive of fees and costs for account maintenance. These damages are an approximation and will be confirmed by KRAKEN’s trading records for Claimants’ accounts.


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Travis 42,985.74 $4,140,386.48 $20,203,297.80

Nick 485.1 $46,724.83 $227,997.00

Chris 384.7 $37,054.30 $180,809.00

Aristeidis 600 $57,792.00 $282,000.00

Andrew 77.45 $7,459.98 $36,401.50

Marco 504 $48,545.28 $236,880.00

Nicholas 519.8 $50,067.14 $244,306.00

Brian 500 $48,160.00 $235,000.00

Antonio 197.02 $18,976.97 $92,599.40

Charles 191 $18,397.12 $89,770.00

TOTAL 55,189.79826 $5,315,881.37 $25,939,205.18

56. One hour after it began, KRAKEN announced that the DDoS had been thwarted and

reported that the functionality of its website and application program interface (API) were back to

normal.

57. Additionally, following the removal of the DDoS, KRAKEN restored to their proper

worldwide value all Ether holdings of its customers -- except for the customers, including The Margin

Claimants (who had held Ether on margin) and Claimant (who, as explained below, had held

Ether in a non-margin KRAKEN account); their accounts remained liquidated.

58. At that time of crisis, KRAKEN failed to have its system functioning properly, failed

to provide the “impeccable security” it advertised to customers, and told customers, including The

Margin Claimants, that they had to bear the burden of KRAKEN’s failures.

59. Moreover, KRAKEN has admitted, in writing, that its malfunctioning software

services and the liquidation they forced during the DDoS attack actually accelerated the May 7, 2017

“flash crash.”


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EVEN CUSTOMERS NOT TRADING ON MARGIN WERE DEVASTATED BY KRAKEN’S MAY 7, 2017 SYSTEM FAILURES

60. Along with the Margin Claimants, many other KRAKEN accountholders, including

Claimant suffered greatly on May 7, 2017 as a result of KRAKEN’s porous security measures

and inadequate software execution.

61. As the events of May 7, 2017 unfolded, Claimant -- who held a large amount

of Ether in his non-margin KRAKEN account -- saw 773.63869 Ether liquidated from his account

without being able to halt that liquidation or otherwise protect himself from harm.

62. Much like the other front-end users, Claimant attempted to, but was unable

to, log on to his KRAKEN account to affect any of the activity that was devastating his account.

63. On May 7, 2017, the 773.63869 Ether that KRAKEN wrongfully liquidated from

Claimant account was valued at $74,516.88 ($96.32 per coin). Those coins have a present-

day valuation of $363,610.18 ($470.00 per coin) -- a value of which Claimant has been robbed

due to KRAKEN’s mismanagement of his affairs and its failure to provide the services that KRAKEN

claims makes it the “best Bitcoin exchange.”

LAGGARD AND FAILED TRADE EXECUTIONS CAUSES KRAKEN CLIENTS ADDITIONAL DAMAGE

Claimant

64. Failing to protect its clients in the May 2017 “flash crash” and mishandling matters in

the aftermath of that event are not the only ways in which KRAKEN has inflicted harm upon its

clients.

65. On July 19, 2017, Claimant RUDOLF placed an order with KRAKEN to sell

2,000 Ether that were being maintained in his KRAKEN account.

66. Instead of being executed immediately, as such a market order should be, the order

took more than 31 minutes to be filled entirely.


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67. Because of KRAKEN’s laggard execution of Claimant order, he suffered a

loss of $18,515.64, as the price at which he placed the order ($207.10 per Ether) dropped all the way

down to $197.74218 per coin by the time KRAKEN executed his order.

68. Within days of the incident, Claimant presented in writing to KRAKEN his

grievance about the untimely execution of KRAKEN’s actions and the harm it had caused him.

69. In response to Claimant injury, KRAKEN’s Customer Support team conceded

KRAKEN’s liability by writing the following in a series of e-mails exchanged with Claimant

• “It is true that you[r] execution was pretty terrible and way below where the marked was when you submitted the market order.”

• “[T]here is no excuse for the poor execution of your entry.”

• “These type of things should not happen[,] and our development team is constantly working on readying our new trading engine.”4

70. Notwithstanding its admission of fault, KRAKEN then sought to placate Claimant

with a fee credit amounting to approximately five percent (5%) of his damage, which

KRAKEN offered “as a courtesy for being a loyal customer.”

71. Claimant rejected the mere pittance KRAKEN had offered as compensation

for his harm and asked that his grievance be escalated to a higher level of consideration at KRAKEN.

72. In response to his request, KRAKEN flatly said “no.”

73. When Claimant himself addressed the matter to KRAKEN’s CEO (Jesse

Powell), it was likewise ignored.

74. KRAKEN acknowledged the harm Claimant had suffered, conceded that it

was responsible for his harm, and then offered nothing more than a miniscule “courtesy” credit to

remunerate Claimant for his injury.

4 Attached hereto as Exhibit “A” is a true and correct copy of Claimant e-mail exchange with KRAKEN Customer Support.


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Claimant

75. Much like Claimant Claimant -- a Tier 4 verified user -- also suffered

the harms of KRAKEN’s failure to timely and adequately execute trading orders and KRAKEN’s

failure to operate an adequately functioning trading platform.

76. As Ether and bitcoin markets were rising in value, Claimant was notified by

KRAKEN that he was nearing the margin limit relating to several positions in his KRAKEN account.

77. On multiple occasions, to execute profitable trades and protect himself from forced

liquidation of his account holdings, Claimant delivered to KRAKEN orders to have certain

short positions in his margin account sold at favorable times. The following are but a few examples

of orders delivered by Claimant that were not timely executed by KRAKEN:

Date Order Was Placed Order Placed

September 23, 2017 Sell ETH/USD 100

October 18, 2017 Sell ETH/USD 100

November 16, 2017 Sell BTC/USD 10 Sell BTC/EUR 5

78. Timeliness is essential to properly executing trades; and notwithstanding Claimant

orders, KRAKEN repeatedly failed to timely execute the orders placed by Claimant

79. As a result of KRAKEN’s failure or refusal to timely heed Claimant trading

instructions, Claimant both lost out on favorable trading opportunities and also was subjected

to KRAKEN forcibly liquidating assets in his account.

80. On November 2, 2017, when Claimant contacted KRAKEN’s Customer

Support team to address the harm he had suffered, a KRAKEN Client Engagement representative

named “Alex” responded by writing: “The system does not respond well. It cannot handle this volume with

reliable execution. This is why your orders are failing. I agree with you that you should not have to see [an automated

error attributing fault to KRAKEN’s untimely processor].”


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81. On November 13, 2017, when Claimant again reported to KRAKEN’s

Customer Support team that he was losing large amounts of money as a result of KRAKEN’s

ineffective trading platform and that several of Claimant attempts to close his margin

positions went unfulfilled, Client Engagement representative “Alex” again responded to the error

messages Claimant was seeing, to wit: “Maybe an error, maybe a successful order. The system isn’t able

to know which. Keep checking your orders to see if it made it in. ***” When Claimant read the

stunningly cavalier response and questioned why KRAKEN -- “a multi-million dollar institution [does

not] have a top notch, reliable, secure, and trustworthy IT system in place” -- KRAKEN representative

“Alex” responded by writing: “This is my response. I don’t like giving it[;] but as it stands, it is how the system

exists and the most help I can offer. I cannot guarantee reliable order execution right now. Please keep this in mind

when trading . . . .”

82. As noted at the outset of this pleading, KRAKEN CEO Jesse Powell has belatedly

conceded that there is “[n]o defending the recent state of the platform” and that while Claimant

and so many KRAKEN accountholders like him were unwittingly suffering losses, KRAKEN

was “split[ting] its efforts with water bailing and fire extinguishing” without advising accountholders

of the inherent flaws in the KRAKEN software systems that even KRAKEN had “give[n] up on.”

83. The above-listed unheeded trade orders alone imposed upon Claimant over

$60,000.00 in damage. Additional improperly unexecuted trades, and the damages related thereto,

will be proven at the Final Hearing in this matter.

84. Had KRAKEN’s systems been functioning properly, and had Claimant trade

orders been executed as he had instructed, he would have been able to timely close out his open

trading positions and prevent the harm he suffered -- something KRAKEN improperly and

unjustifiably denied.


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KRAKEN PROMISED CLAIMANT SECURITY . . . THEN ALLOWED HIS ACCOUNT TO BE EMPTIED BY A KNOWN HACKER

85. On the morning of October 12, 2017, Claimant was alarmed to find that an

uninvited and unwanted intruder had apparently hacked into his KRAKEN account.

86. At or about 8:18 a.m.5 on October 12, 2017, Claimant reported to

KRAKEN’s Customer Support team in writing that his account had been hacked.

87. At or about 8:23 a.m., a KRAKEN Client Engagement representative named “Stu”

responded to Claimant thusly, in pertinent part: “I’m sorry to hear this. I’ve disabled login, funding,

and all other activity on the account in question. A member of our security team will be in touch with you shortly about

this case.”

88. A few minutes later, at or about 8:30 a.m., a KRAKEN Client Engagement

representative named “Alex” reiterated that KRAKEN had locked Claimant account.

89. At or about 8:38 a.m., KRAKEN Client Engagement representative “Alex” again

reiterated that KRAKEN had frozen Claimant account as soon as KRAKEN had made

the “support ticket” in response to Claimant security concerns.

90. At or about 8:43 a.m., Claimant wrote to KRAKEN and pleaded that

KRAKEN “stop any withdraw of anything” from his account.

91. Notwithstanding Claimant pleas and KRAKEN’s repeated assurances that his

account had been frozen, Claimant account -- at or about 9:00 a.m. on October 12, 2017 --

was emptied of all of its assets, including 7.93346 bitcoin.

92. It was not until on or about October 23, 2017 -- when Claimant finally

regained access to his KRAKEN account -- that he was able to determine that his account had been

emptied.

5 All times identified in this Amended Statement of Claim are stated as Pacific Daylight Time (PDT).


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93. On the day they were stolen from him, the bitcoin pilfered from Claimant

account were valued at approximately $43,078.69. Those bitcoin are valued at approximately

$132,000.00 today.

94. Had KRAKEN’s systems been functioning properly, and had proper security

measures been in place, KRAKEN would not have permitted Claimant account to be

wrongfully emptied by some unknown and unwanted assailant as it was on October 12, 2017.

KRAKEN’S WRONGFUL, AVOIDABLE ACTS

95. Had KRAKEN’s systems been functioning properly, the simultaneous “flash crash”

and DDoS attack of May 2017 would not have affected the price of Ether in The Margin Claimants’

margin accounts and Claimant non-margin account; KRAKEN would not have implemented

an automated liquidation of the user accounts holding Ether; and the price of Ether would have

stabilized because of normal user activity (i.e., open market orders being processed in real time).

96. In essence, the majority of KRAKEN customers trading ETH/USD on margin had

their accounts forcibly liquidated; and their assets were sold off at an artificially suppressed price not

tethered to the actual value of Ether.

97. Likewise, Claimant -- who was not trading on margin -- had his account

forcibly liquidated and saw his assets sold off at artificially suppressed prices.

98. Similarly, had KRAKEN’s systems been functioning properly, the orders placed by

Claimants and would have been timely executed and spared them the precipitous price

drop that took place during KRAKEN’s laborious and dilatory performance of its duties.

99. Moreover, had KRAKEN’s security measures been functioning properly, Claimant

would not have suffered in horror as he watched his KRAKEN account get emptied by a

hacker -- less than an hour after KRAKEN had resolutely assured him that it had secured his account

and that all of his account assets were safely protected.


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100. On multiple occasions, KRAKEN has failed Claimants with flawed services belying

the high standards, “24/7/365 support,” and top-rated security KRAKEN promoted in securing

Claimants as customers:

and on each of those occasions, KRAKEN placed the onus of the consequential harm on Claimants

under the blanket of an unconscionable and odious Terms of Service.

101. By all accounts, KRAKEN appears to only care about KRAKEN -- proclaiming that

the company may employ any measures it wishes to protect its financial interests, without any notice

to, or apparently any regard for, its accountholders.

102. KRAKEN has demonstrated a pattern and practice of treating Claimants with malice

and oppression with little to no regard for Claimants’ safety or the value of the very cryptocurrency

that supports the self-regulated industry in which KRAKEN plies its trade.

103. KRAKEN’s focus at all times was, and is, protection of its own financial interests, not

the rights or interests of the customers who serve as the lifeblood of KRAKEN’s business.


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KRAKEN FAILS ITS ACCOUNTHOLDERS WHERE ITS COMPETITORS DO NOT

104. While KRAKEN wants its customers and the cryptocurrency community to believe

that KRAKEN is a leader worthy of following, KRAKEN fails the simple advice offered by other

leaders who faced crises of their own:

• “We’ve got to be judged by how we do in times of crisis.” -- Johnnie Cochran

• “It is in times of crisis that good leaders emerge.” -- Rudolph Giuliani

105. When a crisis arose, KRAKEN withdrew from its customers rather than emerging.

Instead of working with its customers, KRAKEN treated its customers with derision and made the

customers carry the weight of the flaws in KRAKEN’s software and API trading systems.

106. Meanwhile, competitors of KRAKEN’s who faced nearly identical crises did not turn

their backs on their customers and shift the financial burden to their customers.

The May 7, 2017 Market Manipulation Present at Kraken Would Not Have Occurred At, and Was Not Recognized By, Either Coinbase or Gemini

107. As the ETH/USD market tumbled precipitously at KRAKEN on May 7, 2017, two of

the most well-known U.S.-based cryptocurrency exchanges who allow their accountholders to engage

in Ether trading -- Coinbase and Gemini -- recognized no such drop in the value of Ether that day.

108. According to historical records, while Coinbase and Gemini experienced typical

market fluctuations that day, only KRAKEN experienced -- and inflicted upon its customers -- the

plummet in value that forced liquidation of margin and non-margin accounts alike, to wit:

Name of Exchange May 7, 2017 Market Valuations of ETH/USD

High Low Close

Coinbase 97.95 90.00 93.82

Gemini 98.79 88.85 92.67

Kraken 94.86 26.00 87.40


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109. In the days following the event, KRAKEN disputed that any market manipulation had

occurred, instead attributing the event to a large, “legitimate” ETH sell order that triggered a cascade

of liquidations that could not be stopped once they had begun.

110. However, KRAKEN could have, and should have, prevented that downward cascade

from beginning in the first place.

111. The large ETH trade itself -- which KRAKEN accepted as “legitimate” but which

neither Coinbase nor Gemini recognized as having an impact on their ETH/USD markets -- was itself

a manipulation of the KRAKEN ETH/USD market, which KRAKEN legitimized by altering its

ETH/USD valuations in the shadow thereof.

112. Not only did that massive shift in the market happen and impact KRAKEN’s ETH

holders because KRAKEN allowed it to happen, KRAKEN allowed it as KRAKEN’s computer

systems were failing to ward off the DDoS attack.

113. If the Ether that Claimants lost that day had been held on another exchange like

Coinbase or Gemini, they (Claimants) would not have seen their accounts liquidated; and they would

not have suffered the harm inflicted upon them by KRAKEN’s disregard for their safety and failure

to adequately maintain functioning and accessible software systems.

When Exposed to a Similar “Flash Crash,” Coinbase -- Unlike Kraken -- Took Responsibility for Its Failures and Compensated Its Customers

114. Additionally, on June 21, 2017, customers of Coinbase were also subjected to a “flash

crash” in the Ether market.

115. Notwithstanding the brevity of the crash, Coinbase’s customers who held Ether in

their margin accounts -- just like The Margin Claimants herein -- instantly had their positions forcibly

liquidated based on Coinbase’s interpretation of their own Terms of Service.

116. However, Coinbase quickly acted to protect its customers from the flaw in Coinbase’s

operations by restoring all of the forcibly liquidated customers to their status quo ante. Coinbase


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replenished each liquidated customer’s account with an appropriate number of Ether to spare the

customers from having to bear the brunt of Coinbase’s own internal shortcomings.6

117. Moreover, to prevent such an occurrence from taking place again without adequate

protections for its customers, Coinbase discontinued its margin trading service.7

118. In fact, based on published reports, Coinbase is currently being investigated by the

U.S. Commodity Futures Trading Commission related to the June 21, 2017 “flash crash” and the

legality of cryptocurrency exchanges utilizing margin accounts.8

119. KRAKEN knows its operations have been flawed and knows its operations have been

sub-standard. KRAKEN simply refuses to accept responsibility for those problems and, instead,

continues to foist onto customers, including Claimants, the harm that flows from the very things that

only KRAKEN itself can repair.

120. In a published interview with a media outlet, Jesse Powell (KRAKEN’s CEO) was

asked in 2015 what KRAKEN would do if the risks of volatile margin trading were beyond

KRAKEN’s ability to control. To that, Mr. Powell said: “We want people to have a good experience[;] and if

we feel that a particular feature is going to cause a lot of clients a bad experience, we’d remove it or restrict it to those

who have shown that they are aware of and accept the extreme risks involved.”

121. As this Amended Statement of Claim shows, competently managing margin trading

on its platform is indeed beyond KRAKEN’s control; and The Margin Claimants have indeed had a

bad experience with KRAKEN. Nevertheless, leveraged margin trading remains a feature of

KRAKEN’s advertised services; and no adequate restrictions appear to be employed by KRAKEN.

6 http://fortune.com/2017/06/26/coinbase-flash-crash/.

7 https://www.coindesk.com/cftc-investigating-ether-crash-on-coinbase-exchange/.

8 Id.


http://fortune.com/2017/06/26/coinbase-flash-crash/

https://www.coindesk.com/cftc-investigating-ether-crash-on-coinbase-exchange/

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122. Moreover, other accountholders like Claimants and also

had “bad experiences” (to put it mildly) with KRAKEN’s inadequate service, and no remedy short of

refusing to allow any trading whatsoever -- the very essence of KRAKEN’s business -- would appear

to cure the ills that run through KRAKEN’s over-promised and under-performing operations.

123. Until KRAKEN improves its operations and heeds the words of its own CEO,

KRAKEN will remain a danger to the very client base that supports it based on KRAKEN’s false

marketing representations, which are inapposite to its Terms of Service.

124. Claimants have duly performed all of their duties and obligations, and any conditions

precedent to Claimants bringing this action have occurred, have been performed, or else have been

excused or waived.

COUNT I – NEGLIGENCE [The Margin Claimants]

Claimants re-allege, and adopt by reference herein, Paragraphs 1 - 124 above, and further allege:

125. KRAKEN owed its customers, including The Margin Claimants, the following duties,

among others:

(a) Reasonable care in acting as a depository of customer assets,

(b) Reasonable and adequate security to protect its customers’ assets and ward off outside attacks, and

(c) Reasonable, adequate, and unfettered access to KRAKEN’s software services so accountholders could manage their accounts as they saw fit to maximize their interests and forestall potential harm.

126. KRAKEN breached those duties by:

(a) Failing to maintain adequate measures for margin, liquidation, data, and security of Claimants’ accounts and the assets therein.

(b) Failing to reasonably act as a depository of customer assets,

(c) Failing to provide reasonable and adequate security to protect its customers’ assets and ward off outside attacks, and


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(d) Failing to provide reasonable, adequate, and unfettered access to KRAKEN’s software services so accountholders could manage their accounts as they saw fit to maximize their interests and forestall potential harm.

127. As a direct and proximate cause of KRAKEN’s conduct, The Margin Claimants have

been damaged.

COUNT II – NEGLIGENCE [Claimant


128. KRAKEN owed its customers, including Claimant the following duties,

among others:



(c) Reasonable, adequate, and unfettered access to KRAKEN’s software services so accountholders could manage their accounts as they saw fit to maximize their interests and forestall potential harm.


(a) Failing to maintain adequate measures for liquidation, data, and security of Claimant account and the assets therein,

(b) Failing to reasonably act as a depository of customer assets,

(c) Failing to provide reasonable and adequate security to protect its customers’ assets and ward off outside attacks, and

(d) Failing to provide reasonable, adequate, and unfettered access to KRAKEN’s software services so accountholders could manage their accounts as they saw fit to maximize their interests and forestall potential harm.

130. As a direct and proximate cause of KRAKEN’s conduct, Claimant has been

damaged.


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COUNT III – NEGLIGENCE [Claimants and


131. KRAKEN owed its customers, including Claimants and the following

duties, among others:



(c) Reasonably timely execution of trade orders.


(a) Failing to maintain adequate measures for data and security of Claimants and accounts and the assets therein,

(b) Failing to reasonably act as a depository of customer assets, and

(c) Failing to execute customer trade orders in a reasonably timely fashion.

133. As a direct and proximate cause of KRAKEN’s conduct, Claimants and

have been damaged.

COUNT IV – NEGLIGENCE [Claimant


134. KRAKEN owed Claimant the following duties, among others:

(a) Reasonable care in acting as a depository of Claimant assets, and

(b) Reasonable and adequate security to protect Claimant assets and ward off outside attacks.


(a) Failing to maintain adequate measures for security of Claimant account and the assets therein.

(b) Failing to reasonably act as a depository of customer assets, and


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(c) Failing to provide reasonable and adequate security to protect its customers’ assets and ward off outside attacks.

136. As a direct and proximate cause of KRAKEN’s conduct, Claimant has been

damaged.

COUNT V - BREACH OF CONTRACT [The Margin Claimants]


137. Claimants entered into written contracts with KRAKEN.

138. Claimants performed their contractual duties by paying KRAKEN for its services.

139. KRAKEN breached its contractual duties by failing to maintain adequate measures,

rules, policies, and procedures for margin, liquidation, data, and security of Claimants’ accounts and

the assets therein and by improperly freezing and liquidating the Ether holdings of Claimants.

140. Moreover, the contractual terms KRAKEN imposes upon its customers, including

Claimants, are unconscionable and illusory. KRAKEN’s Terms of Service are not only subject to

unilateral modification or elimination at KRAKEN’s sole discretion, that discretion can be exercised

without any notice whatsoever to any of KRAKEN’s customers. By silently removing the benefit for

which its customers bargained, KRAKEN renders its Terms of Service unconscionable and illusory.

141. As a result of these breaches, Claimants suffered damages.

COUNT VI - BREACH OF CONTRACT [Claimant


142. Claimant entered into a written contract with KRAKEN.

143. Claimant performed his contractual duties by paying KRAKEN for its services.


rules, policies, and procedures for liquidation, data, and security of Claimant account and

the assets therein and by improperly freezing and liquidating the Ether holdings of Claimant


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Claimant are unconscionable and illusory. KRAKEN’s Terms of Service are not only subject

to unilateral modification or elimination at KRAKEN’s sole discretion, that discretion can be

exercised without any notice whatsoever to any of KRAKEN’s customers. By silently removing the

benefit for which its customers bargained, KRAKEN renders its Terms of Service unconscionable

and illusory.

146. As a result of these breaches, Claimant suffered damages.

COUNT VII - BREACH OF CONTRACT [Claimants and



148. Similarly, Claimant entered into a written contract with KRAKEN.

149. Claimants and performed their contractual duties by paying KRAKEN

for its services.


rules, policies, and procedures for data and security of Claimants and accounts and

the assets therein and by failing to execute Claimants and trade orders in a reasonably

timely fashion.


Claimants and are unconscionable and illusory. KRAKEN’s Terms of Service are

not only subject to unilateral modification or elimination at KRAKEN’s sole discretion, that discretion

can be exercised without any notice whatsoever to any of KRAKEN’s customers. By silently

removing the benefit for which its customers bargained, KRAKEN renders its Terms of Service

unconscionable and illusory.

152. As a result of these breaches, Claimants and suffered damages.


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COUNT VIII - BREACH OF CONTRACT [Claimant



154. Claimant performed his contractual duties by paying KRAKEN for its

services.


rules, policies, and procedures for data and security of Claimant account and the assets

therein and by allowing an interloper to empty Claimant account when KRAKEN was on

notice that someone had gained unauthorized access to Claimant account.


Claimant are unconscionable and illusory. KRAKEN’s Terms of Service are not only

subject to unilateral modification or elimination at KRAKEN’s sole discretion, that discretion can be

exercised without any notice whatsoever to any of KRAKEN’s customers. By silently removing the

benefit for which Claimant bargained, KRAKEN renders its Terms of Service

unconscionable and illusory.

157. As a result of these breaches, Claimant suffered damages.

COUNT IX - UNJUST ENRICHMENT [The Margin Claimants]


158. Claimants conferred a direct benefit upon KRAKEN by compensating it for providing

a purportedly secure and adequately functioning cryptocurrency trading platform on which Claimants

could trade legal tender for digital assets and vice versa and to trade one type of digital asset for another

type of digital asset.


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159. KRAKEN had knowledge of the benefit Claimants conferred upon it and retained

such benefit.

160. The circumstances under which Claimants conferred, and KRAKEN accepted, such

benefit render KRAKEN’s retention of the benefits inequitable.

161. Equity requires that KRAKEN return to Claimants the benefits conferred upon it by

Claimants.

162. This Count for Unjust Enrichment is plead in the alternative to Claimants’ Count for

Breach of Contract.

COUNT X - UNJUST ENRICHMENT [Claimant


163. Claimant conferred a direct benefit upon KRAKEN by compensating it for

providing a purportedly secure and adequately functioning cryptocurrency trading platform on which

Claimant could trade legal tender for digital assets and vice versa and to trade one type of

digital asset for another type of digital asset.

164. KRAKEN had knowledge of the benefit Claimant conferred upon it and

retained such benefit.

165. The circumstances under which Claimant conferred, and KRAKEN

accepted, such benefit render KRAKEN’s retention of the benefits inequitable.

166. Equity requires that KRAKEN return to Claimant the benefits he conferred

upon KRAKEN.

167. This Count for Unjust Enrichment is plead in the alternative to Claimant

Count for Breach of Contract.


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COUNT XI - UNJUST ENRICHMENT [Claimants and


168. Claimants and each conferred a direct benefit upon KRAKEN by

compensating it for providing a purportedly secure and adequately functioning cryptocurrency trading

platform on which Claimants and could trade legal tender for digital assets and vice

versa and to trade one type of digital asset for another type of digital asset.

169. KRAKEN had knowledge of the benefit Claimants and conferred

upon it and retained such benefit.

170. The circumstances under which Claimants and conferred, and

KRAKEN accepted, such benefit render KRAKEN’s retention of the benefits inequitable.

171. Equity requires that KRAKEN return to Claimants and the benefits

they each conferred upon KRAKEN.

172. This Count for Unjust Enrichment is plead in the alternative to Claimants and

Count for Breach of Contract.

COUNT XII - FRAUDULENT INDUCEMENT [The Margin Claimants]


173. KRAKEN, by acts of both omission and commission, made to The Margin Claimants

false statements of material facts about the services The Margin Claimants would receive from

KRAKEN upon opening a KRAKEN account.

174. Specifically, KRAKEN’s representations to The Margin Claimants that, among other

things:

(a) KRAKEN would act as a sound and reliable depository of customer assets;

(b) KRAKEN would provide adequate security to protect its customers’ assets and ward off outside attacks;


Case No.: 1100088894

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(c) KRAKEN would timely execute trade orders with its fast trading engine; and

(d) KRAKEN would provide its accountholders 24-hour, uninhibited access to a software platform allowing the accountholders to multiply their profits with margin trading by either leveraging long positions or short positions

were false; and KRAKEN knew at the time the statements were made that the statements were false.

175. KRAKEN intended that The Margin Claimants would be induced into action by

relying upon the statements of fact made to them by and on behalf of KRAKEN.

176. In considering whether to open accounts at KRAKEN and entrust to KRAKEN their

valuable assets, The Margin Claimants reasonably and justifiably relied on the statements of fact made

to them by and on behalf of KRAKEN.

177. As a direct and proximate result of The Margin Claimants’ reliance on the statements

made to them by KRAKEN, The Margin Claimants have suffered damage.

COUNT XIII - FRAUDULENT INDUCEMENT [Claimant


178. KRAKEN, by acts of both omission and commission, made to Claimant false

statements of material facts about the services Claimant would receive from KRAKEN upon

opening a KRAKEN account.

179. Specifically, KRAKEN’s representations to Claimant that, among other things:


(b) KRAKEN would provide adequate security to protect its customers’ assets and ward off outside attacks; and

(c) KRAKEN would provide reasonable, adequate, and unfettered access to KRAKEN’s software services so accountholders could manage their accounts as they saw fit to maximize their interests and forestall potential harm



Case No.: 1100088894

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180. KRAKEN intended that Claimant would be induced into action by relying

upon the statements of fact made to him by and on behalf of KRAKEN.

181. In considering whether to open an account at KRAKEN and entrust to KRAKEN

his valuable assets, Claimant reasonably and justifiably relied on the statements of fact made

to him by and on behalf of KRAKEN.

182. As a direct and proximate result of Claimant reliance on the statements

made to him by KRAKEN, Claimant has suffered damage.

COUNT XIV - FRAUDULENT INDUCEMENT [Claimants and


183. KRAKEN, by acts of both omission and commission, made to Claimants and

false statements of material facts about the services Claimants and would

receive from KRAKEN upon each of them opening a KRAKEN account.

184. Specifically, KRAKEN’s representations to Claimants and that, among

other things:



(c) KRAKEN would timely execute trade orders with its fast trading engine


185. KRAKEN intended that Claimants and would be induced into action

by relying upon the statements of fact made to them by and on behalf of KRAKEN.


his valuable assets, Claimants and each reasonably and justifiably relied on the

statements of fact made to them by and on behalf of KRAKEN.


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187. As a direct and proximate result of Claimants and reliance on the

statements made to them by KRAKEN, Claimants and have suffered damage.

COUNT XV - FRAUDULENT INDUCEMENT [Claimant


188. KRAKEN, by acts of both omission and commission, made to Claimant

false statements of material facts about the services Claimant would receive from KRAKEN

upon opening a KRAKEN account.

189. Specifically, KRAKEN’s representations to Claimant that, among other

things:

(a) KRAKEN would act as a sound and reliable depository of customer assets; and

(b) KRAKEN would provide adequate security to protect its customers’ assets and ward off outside attacks










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COUNT XVI - FRAUDULENT MISREPRESENTATION [The Margin Claimants]




KRAKEN for the fees they were compelled to pay to maintain a KRAKEN account.


things:



(c) KRAKEN would timely execute trade orders with its fast trading engine; and

(d) KRAKEN would provide its accountholders 24-hour, uninhibited access to software services allowing the accountholders to multiply their profits with margin trading by either leveraging long positions or short positions


195. KRAKEN’s misrepresentations were made with reckless disregard for the truth.



197. In considering whether to maintain accounts at KRAKEN and entrust to KRAKEN

their valuable assets, The Margin Claimants reasonably and justifiably relied on the statements of fact

made to them by and on behalf of KRAKEN.




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COUNT XVII - FRAUDULENT MISREPRESENTATION [Claimant



statements of material facts about the services Claimant would receive from KRAKEN for

the fees he was compelled to pay to maintain a KRAKEN account.


things:








203. In considering whether to maintain an account at KRAKEN and entrust to KRAKEN






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COUNT XVIII - FRAUDULENT MISREPRESENTATION [Claimant and



false statements of material facts about the services Claimants and would

receive from KRAKEN for the fees they were each compelled to pay to maintain a KRAKEN

account.


other things:






208. KRAKEN intended that Claimants and would be induced into action

by relying upon the statements of fact made to them by and on behalf of KRAKEN.


his valuable assets, Claimants and each reasonably and justifiably relied on the





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COUNT XIX - FRAUDULENT MISREPRESENTATION [Claimant




for the fees he was compelled to pay to maintain a KRAKEN account.


things:












COUNT XX - NEGLIGENT MISREPRESENTATION [The Margin Claimants]





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KRAKEN upon opening KRAKEN accounts and about the services The Margin Claimants would

receive from KRAKEN for the fees they were compelled to pay to maintain KRAKEN accounts.


things:



(c) KRAKEN would provide its accountholders 24-hour, uninhibited access to software services allowing the accountholders to multiply their profits with margin trading by either leveraging long positions or short positions

were false; and KRAKEN knew, or should have known, at the time the statements were made that

the statements were false.

219. KRAKEN had no reasonable grounds upon which to believe the statements were true

when made to The Margin Claimants.



221. In considering whether to open and maintain accounts at KRAKEN and entrust to

KRAKEN their valuable assets, The Margin Claimants reasonably and justifiably relied on the




COUNT XXI - NEGLIGENT MISREPRESENTATION [Claimant



statements of material facts about the services Claimant would receive from KRAKEN upon


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opening a KRAKEN account and about the services Claimant would receive from

KRAKEN for the fees he was compelled to pay to maintain a KRAKEN account.


things:







when made to Claimant



227. In considering whether to open and maintain an account at KRAKEN and entrust to

KRAKEN his valuable assets, Claimant reasonably and justifiably relied on the statements

of fact made to him by and on behalf of KRAKEN.



COUNT XXII - NEGLIGENT MISREPRESENTATION [Claimant and



false statements of material facts about the services Claimants and would each


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receive from KRAKEN upon opening a KRAKEN account and about the services Claimants

and would each receive from KRAKEN for the fees they were each compelled to pay to

maintain a KRAKEN account.


other things:







when made to Claimants and

232. KRAKEN intended that Claimants and would each be induced into

action by relying upon the statements of fact made to them by and on behalf of KRAKEN.


KRAKEN their valuable assets, Claimants and each reasonably and justifiably relied

on the statements of fact made to them by and on behalf of KRAKEN.



COUNT XXIII - NEGLIGENT MISREPRESENTATION [Claimant





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upon opening a KRAKEN account and about the services Claimant would receive from

KRAKEN for the fees he was compelled to pay to maintain KRAKEN accounts.


things:


(b) KRAKEN would provide adequate security to protect its customers’ assets and ward off outside attacks




when made to Claimant




KRAKEN his valuable assets, Claimant reasonably and justifiably relied on the statements

of fact made to him by and on behalf of KRAKEN.



COUNT XXIV – FALSE ADVERTISING IN VIOLATION OF CAL. BUS. & PROF. CODE §§ 17500, et seq.

[All Claimants]


241. KRAKEN operated an enterprise by which they sought to collect fees from

accountholders, including Claimants, for services promoted by KRAKEN in numerous media,

including KRAKEN’s own website.


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242. KRAKEN publicly disseminated advertising was untrue or misleading in that

statements made regarding the security and reliability of KRAKEN’s services were inaccurate,

incomplete, misleading, and misrepresentative of the services and security a KRAKEN accountholder

would actually receive upon opening an account.

243. KRAKEN knew, or in the exercise of reasonable care should have known, that its

statements were untrue or misleading.

244. KRAKEN’s false statements increased the number of its accountholders (and the fees

KRAKEN derived therefrom) in a scale far greater than there would otherwise have been without

those false statements.

245. As a direct and proximate result of KRAKEN’s false advertisements, Claimants have

suffered injury to their property and damages.

COUNT XXV – UNFAIR COMPETITION IN VIOLATION OF CAL. BUS. & PROF. CODE §§ 17200, et seq.

[All Claimants]


246. By making material misrepresentations and omissions of fact in soliciting

accountholders, KRAKEN has committed acts of unfair competition, as defined by Business and

Professions Code section 17200.

247. KRAKEN’s acts and practices, as described more fully herein, violates Business and

Professions Code section 17200 in each of the following respects, among others:

(a) KRAKEN’s material misrepresentations and omissions of fact violate Section 17(a) of the Securities Act (15 U.S.C. §§ 77q(a)) and California’s False Advertising Law (Bus. & Prof. Code §§ 17200, et seq.), and consequently, constitutes an unlawful business act or practice within the meaning of Business and Professions Code section 17200;

(b) The harm to Claimants outweighs the utility of KRAKEN’s policies/practices, and consequently, KRAKEN’s practices constitute an unfair business act or practice within the meaning of Business and Professions Code section 17200;


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(c) KRAKEN’s conduct threatens an incipient violation of consumer protection laws, including but not limited to those laws referenced in subparagraph (a) above or violates the policy or spirit of such law or otherwise significantly threatens or harms competition;

(d) KRAKEN’s material misrepresentations and omissions of fact regarding the security and reliability of KRAKEN’s services were likely to mislead the general public; and consequently, constituted fraudulent business acts or practices within the meaning of Business and Professions Code section 17200; and

(e) KRAKEN’s acts of untrue and misleading advertising, as more fully set forth above, are by definition violations of Business and Professions Code section 17200.

248. As a result of the aforementioned acts and omissions, Claimants have lost money or

property and have suffered injury-in-fact.

249. KRAKEN received, and continues to hold, money and property belonging to

Claimants.

250. Claimants have no adequate remedy at law for the injuries which they have suffered

and will continue to suffer in the future.

PRAYER FOR RELIEF

WHEREFORE, Claimants pray for entry of an award providing relief as follows:

(a) Entry of an award of monetary, punitive and actual damages and/or restitution, as appropriate;

(b) Prejudgment and post-judgment interest to the extent allowed by the law;

(c) Awarding all costs, expenses, experts’ fees, and attorneys’ fees incurred in prosecuting this action; and

(d) Such other and further relief as the Court may deem just and proper.


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Respectfully submitted, SILVER MILLER 11780 W. Sample Road Coral Springs, Florida 33065 Telephone: (954) 516-6000 DAVID C. SILVER E-mail: [email protected] JASON S. MILLER E-mail: [email protected]

- and -

WITES LAW FIRM 4400 N. Federal Highway Lighthouse Point, Florida 33064 Telephone: (954) 570-8989 Facsimile: (954) 354-0205 MARC A. WITES E-mail: [email protected]

- and -

KAPLAN FOX 350 Sansome Street - Suite 400 San Francisco, California 94104 Telephone: (415) 772-4700 Facsimile: (415) 772-4707 LAURENCE D. KING E-mail: [email protected] Counsel for Claimants

CERTIFICATE OF SERVICE

WE HEREBY CERTIFY that a true and correct copy of the foregoing was served via electronic mail only this 11th day of December 2017 to: EDWARD STADUM, ESQ., General Counsel for Respondent, Payward, Inc. d/b/a Kraken, 548 Market Street - Suite 39656, San Francisco, CA 94104-5401, E-mail: [email protected]; and DARCY ENGLISH, Senior Case Manager, JAMS, Two Embarcadero Center - Suite 1500, San Francisco, CA 94111, E-mail: [email protected].

DAVID C. SILVER


mailto:[email protected]






Rudolf

Jul 26, 16:17 PDT

Dear Sir/Madam:

On the 19th of July I placed a market order to sell 2000 ETH. The order was opened at

19:19:03 UTC and was closed for an average price of USD 197.74218 at 19:50:52 UTC, i.e.

more than 31 minutes later.

During this order execution time I could not find any information on the trading platform

whether my order had been executed or not. So I wondered whether something might be

wrong. For that reason I opened a second market order to sell 0.01 ETC. I placed this

second order merely to test how this one would execute, including what information about

it would appear and when. This second order was opened at 19:34:26 UTC and was closed

for an average price of USD 200 at 19:39:09 UTC, i.e. 4 minutes later.

I think that it is not acceptable that you delay the execution of market orders. If you cannot

execute market orders properly then you should disable the option of market orders until

you fix your trading platform accordingly. So why do still enable users to use market

orders? And you do not notify users with clear warnings about the (possible) delay of

market order execution when logging in. This would have been possible as you also notify

users with messages like "New asset: EOS trading now live!".

Also, my aforesaid two trades show clearly that you are not able to process market orders

chronologically.

So why did my first order took 31 minutes to execute and my second order only 4 minutes?

And why was my second order closed earlier then my first order?

So are you planning to reimburse me for this?

1 Minute data for the ETH USD trading pair:

UTC Open ($) High ($) Low ($) Volume (ETH)

19:19 207.1 207.1 207.1 723

19:20 207.1 207.49998 206.9 909

19:21 206.9 206.9 206.3 877

19:22 206.3 206.3 206.3 877

19:23 206.3 206.3 205.33 745

EXHIBIT "A"

These data clearly show that the average market price of my market sell order should have

been USD 207.0 instead of USD 197.74218, i.e. if you had executed my market order

properly. And the table also shows that if my market order would have been executed

within 4 minutes (such as you did with my second market order) then the average market

price would have been at least USD 206.3.

(207- 197.74218) * 2000 = USD 18,515.64

Please let me know what you can do for me. I will certainly stay trading at your platform if

you reimburse me. In that case I will only place limit buy orders until your market orders

work properly.

If you are not willing to reimburse me then I think that you agree with me that I would not

have any reason to maintain trading at your platform.

Lastly, I hope that you take your long term profits in consideration when making a decision

on this issue, i.e. so that I can remain a happy trader on your platform for many years to

come.

Yours sincerely,

Rudolf

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Gil (Kraken Support) Jul 28, 10:21 PDT

Hello Rudolf,

This is an interesting case because, there are a couple of different aspects to consider. It is true that you execution was pretty terrible and way below where the market was when you submitted the market order. Another aspect is that after entering that position you sat on it for almost 20 hours without attempting to exit. During that nearly 20 hour window, the market was well below your entry and there were many opportunities to exit for a significant profit or to break even.

All of that being said, there is no excuse for the poor execution of your entry. These type of things should not happen and our development team is constantly working on readying our new trading engine. While we cannot reimburse for a specific trade, I'd like to offer you 100,000 KFEE as a courtesy for being a loyal customer. Once added to your account this would cover your next $1,000 in Kraken fees. Considering all of the aspects of this trade, this seems like a reasonable resolution. Let me know if you'd like me to have the KFEE added to your account.

Regards,

Gil Kraken Client Engagement

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Aug 22, 08:39 PDT

Dear Sir/Madam:

Could you please remind Mr. Powell of the issue which I sent him about on the 3rd as well

as the 9th of August? I have included these messages below, which were sent to

[email protected].

Does Mr. Powell have an indication when he will probably be able to process my message?

Yours sincerely,

Rudolf

Copy of my previous messages:

Dear Mr. Powell:

Currently I am a Tier 4 customer of your trading platform, trading on it since December

2015. I have an issue which I would prefer to solve relatively quickly with you, i.e. without

the need of involving lawyers.

I have always loved trading on your platform. Your exchange is the first one which I chose

to buy cryptocurrencies. I started trading specifically on your platform because of the

positive impression I had (and still have) of you. For instance, I appreciate how you helped

Mr. Karpeles right after the June 2011 hack of Mt. Gox.

Until recently I have never experienced noteworthy issues with your trading platform. Thus

last week I submitted a support ticket for my issue (#502679). I am not amused by the

response that I got from your support team. I am not sure now whether the response is in

line with your vision on how to conduct business. Alternatively, your support team may

have overlooked aspects of my issue. And therefore I would appreciate it if you look at the

issue yourself. My support message and the response are included in plain text below.


If we are able to solve my issue then I will still use your trading platform.

Yours sincerely,

Rudolf

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Charla (Kraken Support)

Aug 23, 20:00 PDT

Hi Rudolf,

While we cannot reimburse for a specific trade, I'd like to offer you 100,000 KFEE as a courtesy for being a loyal customer. Once added to your account this would cover your next $1,000 in Kraken fees. Let me know if you'd like me to have the KFEE added to your account.

Warm Regards,

Charla Client Engagement Team

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Aug 24, 2017

Dear Charla:

Thank you for your quick reply. Could you please still escalate my issue to your CEO as I

asked you?

Yours sincerely,

Rudolf

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Charla (Kraken Support)

Aug 28, 18:17 PDT

Hi Rudolf,

Unfortunately, I am unable to escalate your request. Please let me know if you are interested in accepting our offer of fee credits at earliest convenience.

Warm Regards,

Charla Client Engagement Team

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